Earlier this week, investors came down hard on Electronic Arts (EA) after the video game giant announced surprisingly weak fiscal third-quarter results. Today, they might be rethinking their positions.
News is out that EA’s Apex Legends free-to-play shooter game has brought in more than 10 million players in just 72 hours, sending shares skyrocketing nearly 15% in Friday’s trading session.
In reaction, Wedbush analyst Michael Pachter reiterates an Outperform rating on EA stock, with a price target of $95, which actually implies a slight downside from current levels. (To watch Pachter’s track record, click here)
Pachter commented, “It is likely that Apex Legends can meet or exceed our $100 million contribution estimate for FY:20, but it is far too early for us to conclude that the game will materially grow beyond the 10 million MAU level. When we updated our model on Tuesday night, following EA’s Q3:FY19 results, we included $100 million in contribution from Apex Legends in FY:20. That figure is based upon our rule of thumb that free-to-play games typically generate around $10 per monthly active user (MAU) per year. It is difficult to compare the potential of Apex Legends to the phenomenon of Fortnite (an estimated $40 annually), as the latter game has several features that are difficult to replicate.”
“We think that investors are overly impressed by the 10 million download figure for Apex Legends, and by the early Twitch viewership data. Because of the press junket, Apex Legends received a lot of early press, so while the 10 million initial player estimate is indeed quite impressive, it is far too early to tell whether the MAU count will be materially higher a few months from now. For the time being, we are maintaining our estimate, and we will revisit the topic should we learn more about the game’s staying power in the coming months,” the analyst continued.
Overall, TipRanks’ data shows an overwhelmingly bullish camp backing this game titan. The ‘Strong Buy’ stock has amassed 18 ‘buy’ ratings in the last three months, with just 6 analysts playing it safe with a ‘hold’ rating. However, the 12-month average price target still stands low at $93.75, marking nearly 3% downside for the stock. (See EA’s price targets and analyst ratings on TipRanks)